Exporters may benefit from a weaker euro exchange rate

Good morning,

Data released early this morning for the EU has showed that German private-sector growth slowed to the weakest in 18 months in December, increasing the risk that a soft phase will turn into a more pronounced economic downturn. The Euro has weakened off following this data after initially strengthening towards the end of yesterday.

Manufacturing and services in the 18-nation euro area barely expanded in December as sluggish growth in Germany and France kept business activity subdued. With France barely growing this year, Italy in recession and Germany struggling to leave a mid-year weak patch behind, the European Central Bank is readying further stimulus as governments wrangle over economic reforms. Some support for euro-area consumers may come from oil prices that have fallen more than 40 percent this year, while exporters may benefit from a weaker euro exchange rate.

Inflation figures released this morning revealed that UK Inflation fell to its lowest rate in more than a decade in November as tumbling oil prices pushed down transport costs and food prices dropped. Government bond yields declined. The rate of consumer-price growth declined to 1 percent, the least since 2002, from 1.3 percent in October. Inflation has been below the BOE’s 2 percent target since January, helping Carney justify keeping the benchmark rate at a record-low 0.5 percent. A drop in the inflation rate below 1 percent would force Carney to write his first public letter of explanation since he became governor in July 2013.

In the US, The Federal Reserve will look past low inflation and drop a pledge to keep interest rates near zero for a “considerable time” as it seeks an exit from the loosest monetary policy in its 100-year history, economists said. Fed officials weighing when to tighten policy are likely to focus on a jobless rate that’s fast approaching their goal for full employment, even as declining oil prices hold inflation below their target.
Later this afternoon the ECBs Nouy speaks in Paris. Tomorrow for the UK we have the unemployment figures followed by the MPC minutes for the last interest rate announcement.

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